Christine Lagarde faces ECB test of legendary diplomatic skills

European Central Bank provides an arena split between anti-austerians and expansionists

Christine Lagarde will take up the position of head of the European Central Bank as a self-confessed economic outsider who has preferred to emphasise her ability as a listener and tough negotiator during her seven years as managing director of the International Monetary Fund.

A lawyer by training, the former French finance minister is credited with turning around the Washington-based IMF after it was thrown into turmoil by the abrupt resignation of her predecessor Dominique Strauss-Kahn following unproven allegations of sexual assault and attempted rape.

Lagarde, 63, was confronted by an organisation that had not only lost its leader in regrettable circumstances, but was also hampered by warring factions at odds over policymaking after being blindsided by the 2008 financial crisis.

Unlike Kahn, who was preparing to return to his native France to challenge François Hollande as the left’s anti-austerity presidential candidate, Lagarde’s background was in Conservative politics. Before joining the IMF, she was finance minister in Nicolas Sarkozy’s right of centre government.

Speaking to the Guardian not long after she was appointed in 2012, Lagarde admitted: “I’m not the top-notch economist; I can understand what people talk about, I have enough common sense for that, and I’ve studied a bit of economics, but I’m not a super-duper economist.

“But, yes, that appreciation for the interests pursued by the other side at a negotiation table, a sense of the collective interest and how that can transcend the vested individual interests of the members, that matters.”

When she was asked to choose between the IMF factions that backed austerity measures and those that favoured expansionist policies, she appeared to give her blessing to austerity.

Most controversially, early in her tenure she sanctioned joining the European Union in its efforts to rescue Greece from bankruptcy with what the former Greek finance minister Yanis Varoufakis described as a straitjacket rather than a lifeboat.

She publicly backed the then UK chancellor George Osborne and the German finance minister Wolfgang Schaeuble, the architects of Europe’s austerity policies, and advised nations to pay down their debts.

But it was a different story behind the scenes. Her support for writing off most of Greece’s debts in return for reforms was overruled and she came to urge governments to use their spending power to ease the burden on the poor and invest in environmentally friendly infrastructure.

Born in Paris in 1956, she is the eldest daughter of a university lecturer and a teacher. After school in Le Havre and the US, she failed twice to get into the prestigious École Nationale d’Administration, the elite incubator for French civil servants. Instead she joined the American law firm Baker & McKenzie and rose quickly to become its first female chair.

As president of the ECB, she will be pitched into another arena split between anti-austerians and expansionists, with Italy’s Matteo Salvini demanding an easing of EU and ECB rules to allow for higher spending while the Germans seek to keep a tight rein on their neighbours’ budgets.

Lagarde’s diplomatic skills are legendary at the IMF and will prove essential at a time when expectations of central banker power are at an all-time high. They are among the most prominent policymakers around, even though their ability to turbo-charge economic growth, now that interest are already at rock-bottom levels, is running low.

Possible successors at the IMF include Pierre Moscovici, the outgoing European commissioner for economic and financial affairs and the Bank of England governor, Mark Carney, who leaves his post next January and, until recently, combined his job with running the G20s financial stability watchdog.


Phillip Inman

The GuardianTramp

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